Family Firms' Sustainability and Governance in a Global Context - Part 1

by Olga Murolo and Michael Reed, The Sustainability Board institute

Introduction

While family-owned businesses are naturally strong on sustainability because of their long-term, legacy-driven mindset, these strengths often weaken abroad. This three-part paper of The Sustainability Board’s Institute for Sustainable Family Business argues that more independent, internationally experienced governance is key to maintaining their values globally. Readers should explore it for a clear, research-based explanation of this paradox and practical guidance on how family firms can preserve their identity and sustainability leadership as they expand internationally.

Part 1: From Local Roots to the Global Stage: The Governance Paradox of Family Firms

This article opens a three-part series on Family Firms' Sustainability and Governance in a Global Context. Drawing on international research and original analysis, the series explores: theoretical insights into the governance paradox of family firms; empirical evidence from Italian family firms' governance practices and their sustainability strategies in worldwide FDIs (Foreign Direct Investments); practical implications of the research and questions for family firms worldwide.

Key findings:

• Many family firms are “green by default”: thanks to their long-term orientation and socio-emotional wealth, they prioritize legacy over short-term returns.

  
  

• Global expansion challenges Socio-Emotional Wealth: the cultural and institutional distance between home and host countries weakens locally rooted sustainability commitments.

  
  

• Governance diversity is the bridge: independent and internationally experienced boards help family firms translate their values globally and strengthen ESG practices abroad.

They are the silent titans of the world economy. Family-owned firms operate with a distinctive attitude that frequently distinguishes them from their non-family competitors. These businesses are rooted in tradition and community.

They make judgements based on a strong, frequently unsaid commitment to future generations in addition to quarterly earnings. Many of them are natural leaders in sustainability and social responsibility because of this long-term outlook. However, these companies encounter a crucial paradox when they enter the international arena: the qualities that make them successful domestically may prove to be their biggest obstacles overseas.

At the heart of the matter lies a concept known as Socio-Emotional Wealth (SEW)¹. This is the firm’s governing philosophy, a portfolio of non-financial assets that includes preserving the family legacy, maintaining control, safeguarding a hard-won reputation, and upholding deep ties to the local community². SEW is so vital that family owners are often willing to forgo short-term financial gains to protect it. This mindset fosters what is known as "patient capital," allowing for investments in sustainable practices that may not yield immediate profits but are crucial for long-term resilience and a positive legacy³. As a result, studies consistently show a positive correlation between family ownership and superior environmental performance, especially when family members are involved in daily management⁴. They are, in many ways, "green by default."

This strength, however, is intensely local. The social capital and reputation that constitute SEW are tied to a specific place and a familiar set of stakeholders. When a family firm expands internationally, it enters a world where its name may mean little and its informal, trust-based way of doing business clashes with new norms. This gives rise to a distinct "home-country bias". The firm's robust ESG commitments often fade with distance. The greater the cultural and institutional gap between the home and host countries – differences in rule of law, regulatory quality, or social values – the more difficult it becomes to transplant these home-grown practices⁵. For a business that thrives on relational trust, navigating these foreign landscapes can be disorienting and fraught with risk.

So, how can family firms build a bridge to carry their values across these divides? The answer begins with governance. While family leadership provides vision and stability, an insular board structure can become an echo chamber. To succeed globally, a family firm must evolve its governance to be more resilient and outwardly focused. This means strengthening board independence by bringing in outside directors with diverse international experience. An independent board is not a threat to family control; rather, it is a vital mechanism for translating the family's core values into a language that global investors, regulators, and stakeholders can understand and trust. It provides the oversight needed to navigate complex legal environments and hold foreign subsidiaries accountable to the firm's sustainability goals.

Beyond the boardroom, strategy on the ground is key. Creating a light-footprint commercial outpost and making deep, long-term commitments through a productive foreign direct investment are worlds apart. When a family firm constructs a factory or a foreign production facility, it is compelled to "put down roots" in the new community. Such a physical, capital-intensive presence gives rise to local ties that cannot be avoided and that will more readily invite scrutiny. The firm must hire local employees, engage with local suppliers, and abide by local environmental regulations. In this context, ESG is no longer an abstract headquarters policy but a non-negotiable "license to operate". Such deep operational engagement forces the firm to learn, adapt, and integrate its sustainability principles into the very fabric of its foreign operations, making them tangible and resilient.

Ultimately, the journey from local champion to global leader is a matter of conscious evolution. The Socio-Emotional Wealth that serves as the firm's engine must be matched with a sophisticated steering mechanism-a robust, independent governance structure. That, in turn, must be guided by a clear roadmap-a strategy of deep operational commitment in key foreign markets. The challenge for today's family firms is not to abandon the unique identity that makes them successful but to build a framework strong enough to carry that identity across borders. Those that rise to this challenge will not only preserve their legacy but will transform it into a powerful and enduring global competitive advantage.

Download the full paper below

ISFB Memo Family Firms and Governance in a Global Context 12-25.pdf

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Endnotes

¹ Gómez-Mejía, L. R., Cruz, C., Berrone, P., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55(1), 82–113.

² Berrone, P., Cruz, C., & Gómez-Mejía, L. R. (2012). Socioemotional wealth and proactive stakeholder engagement: Why family-controlled firms care more about their stakeholders. Entrepreneurship Theory and Practice, 36(6), 1153–1173.

³ Hughes, M., Le Breton-Miller, I., Miller, D., & Scholes, L. (2025). ESG essentials for family firms. Family Business Research Foundation.

⁴ Agostino, M., & Ruberto, S. (2021). Environment-friendly practices: Family versus non-family firms. Journal of Cleaner Production, 280, 124376.

⁴ Agostino, M., & Ruberto, S. (2021). Environment-friendly practices: Family versus non-family firms. Journal of Cleaner Production, 280, 124376.

⁵ Beugelsdijk, S., Kostova, T., Kunst, V. E., Spadafora, E., & van Essen, M. (2018). Cultural distance and firm internationalization: A meta-analytical review and theoretical implications. Journal of Management, 44(1), 89–130.